Clarifying the debate about deflation concerns
Mickey Levy, 21 February 2014
A popular view among economic commentators is that rich countries face a serious risk of deflation, and should adopt aggressive macroeconomic stimulus policies to ward it off. This column argues that despite similar headline inflation rates, the US, Europe, and Japan in fact face very different macroeconomic conditions. In the US, much of the recent disinflation is attributable to positive supply-side developments. In Europe, an aggressive round of quantitative easing might encourage policymakers to delay the reforms that are necessary to avoid a prolonged Japanese-style malaise.
A common theme among many economic policymakers, financial market participants, and the media is that rich industrialised nations face a high risk of deflation, and that deflation always harms economic performance and so must be combatted with aggressive macroeconomic stimulus. Such broad assessments are misleading, and under certain circumstances may lead to misguided policies.
Topics: Global crisis, Monetary policy
Tags: deflation, disinflation, Europe, eurozone, Japan, quantitative easing, US
More time spent on television and video games, less time spent on studying?
Tomohiko Inui, Ryoji Matsuoka, Makiko Nakamuro, 16 January 2014
Parents worry that their children waste too many hours playing video games or watching TV that would be better spent studying. Whereas past research has focused on teenagers, this column presents evidence on the causal effects of study and leisure hours for children of elementary school age, when key lifetime habits are being developed. Video entertainment is found to be a less significant determinant of time spent studying than parental involvement (such as supervision).
Many parents believe that TV and video games are ‘idiot boxes’ that rot their children’s minds and crowd out study time. We agree with this general perception, but add the caveat that less time spent on TV or video games does not automatically lead to more time spent on studying. It is easy to detect the correlation but harder to determine causality.
Tags: education, Japan, TV, videogames
Sharpening Abenomics’ third arrow: Labour-market reform in Japan
Giovanni Ganelli, 15 January 2014
The third arrow of Abenomics aims at reviving growth in Japan. This column presents research showing that revamping Japan’s dual labour markets to increase productivity should be an important component of the growth strategy. An increase in the level of employment protection of regular workers tends to increase duality, while an increase in the protection of temporary workers has the opposite effect. Reducing the difference in the employment protection would help to reduce the labour-market duality, and reducing the duality results in a higher growth. This would lead to a decrease in unemployment, and could help to exit deflation.
The share of non-regular workers in Japan, which was below 20% before the burst of the bubble in the early 1990s, has now reached 35% (see Figure 1). The status of regular versus non-regular worker is based on the de facto relationship between workers and their employers, rather than on legal grounds. Regular workers are those who are:
Topics: Labour markets
Tags: Dualism, Japan, non-regular workers
Industrial policy and productivity: The case of import quota removal during post-war Japan
Kozo Kiyota, Tetsuji Okazaki, 6 January 2014
The presumed success of Japanese post-war industrial policy has been used to advocate similar policies in other countries. Key to such arguments then is the empirical demonstration of the policies’ effects. This column presents research making use of a novel dataset that allows controlling for industry heterogeneity across many disaggregated industries. The effects of the quota removal on productivity were significantly positive, while the effects of tariffs on labour productivity were insignificant.
Quantifying the effects of industrial policies is one of the most important research issues in various fields of economics.1 One of the most controversial industrial policies is the Japanese policy during the post-war period.2 The controversy arises because the success of some of the Japanese industrial policies has been used to justify
Topics: Industrial organisation, International trade
Tags: industrial policy, Japan, quotas, tariffs
Supply-chain vulnerability: An analysis of the impact of earthquakes using micro data
Yukiko Umeno Saito, 15 December 2013
Natural disasters severely disrupt supply chains. This article presents evidence from the Great East Japan Earthquake that the spillover effects on disaster-hit firms’ suppliers were worse than those on their customers. For those firms that shut down, however, the effects on their customers were worse, and were transmitted along the supply chain. Firms with partners inside the affected area were more likely to form new business relationships, but those whose partners shut down were not. This suggests disaster relief should be targeted to the hardest-hit firms.
Natural disasters have long-lasting consequences (Noy 2012). Two and a half years have passed since the Great East Japan Earthquake, and although many issues have yet to be resolved – including that of the evacuees – many lessons concerning economic activities have been learned from the unexpected disaster.
Topics: Industrial organisation
Tags: earthquake, Japan, natural disasters, supply chains
The lessons from the Great East Japan Earthquake and the Great Floods in Thailand
Masahisa Fujita, 18 November 2013
A major feature of globalisation in the last decades has been the emergence of global supply chains, especially in Asia. This column explains how supply chains may increase the risks of shock contagion across countries. It shows how the earthquake and tsunami in Japan, and the floods in Thailand had ripple effects on the Japanese automobile industry across countries. It suggests that greater international cooperation, such as the development of sister industrial clusters, is one way to mitigate the risks.
The Great East Japan earthquake which occurred on 11 March 2011 had a surpassing 20 meters high that hit several hundred kilometres of the Tohoku coastline on the eastern side of Japan, and cost the lives of approximately 18,000 people. This was followed by a nuclear crisis categorised as level 7 on the International Nuclear Event Scale.
Topics: Industrial organisation, International trade
Tags: global supply chains, Japan, natural disasters
Reduced policy uncertainty and the Japanese economy
Masayuki Morikawa, 2 November 2013
Reduced policy uncertainty can contribute to a country’s economic growth. This column highlights the negative influence of policy uncertainty and political instability on the growth of Japan. A survey shows that international trade and tax polices pose the greatest uncertainty on Japanese companies. The column concludes with a discussion of the mechanism via which uncertainty affects corporate behavior.
While the effects of the 'three arrows' of the Japanese Abenomics policy mix – bold monetary easing, flexible fiscal policy, and the growth strategy –have attracted worldwide attention, reduced policy uncertainty is also expected to contribute to the country’s economic growth by stimulating long-term investments in the private sector.
Topics: Institutions and economics
Tags: economic growth, Japan, uncertainty
The future of Japan’s Long-term Care Insurance Program
Satoshi Shimizutani, 12 September 2013
Policymakers in the developed world are fretting over how to care (and pay) for their ageing populations. This column unpacks the thinking behind Japan’s extensive Long-term Care Insurance Program, arguing that there are too many sweeping assumptions about the elderly and how they behave. So how can we best design policy for long-term care? As ever, it is only from well-funded and comprehensive datasets – such as the Japanese Study on Aging and Retirement, now in its fourth year – that effective policy will come.
The debate of social-security-system reform in Japan is now entering a crucial stage.
Topics: Health economics, Welfare state and social Europe
Tags: Ageing, care, Japan
Consumption-tax fears risk stalling Abe’s ‘three arrows’
Takatoshi Ito, 11 September 2013
Abenomics comprises three ‘arrows’. The monetary and fiscal arrows have been launched; the pro-growth arrow has not. This column suggests that arguments over the consumption tax burn up precious political capital that would be better spent on growth reforms. A consumption-tax hike won’t stall the expansion, but debates over it threaten to stop reform momentum. The time to release the third arrow is now.
Abenomics is Japanese Prime Minister Abe’s policy package consisting of three ‘arrows’:
- Aggressive monetary easing.
- Flexible fiscal policy.
- Growth strategies.
Together, they aim at lifting Japan’s economy from chronic deflation and stagnation to a normal economy with 2% inflation and strong growth.
Topics: Politics and economics, Taxation
Tags: growth strategy, Japan
Identifying conventional and unconventional monetary policy shocks
Takeshi Kimura, Jouchi Nakajima, 31 August 2013
Unconventional monetary policy is now routine, but its impact is still poorly understood. A key difficult is empirically separating policy changes – ‘shocks’ – from other factors driving the economy. This column proposes a new estimation framework for identifying monetary-policy shocks in both conventional and unconventional policy regimes and applies it to Japan. Japan’s increase in bank reserves lowered long-term interest rates in the unconventional policy regime and may have had a positive impact on inflation and the output gap.
The widely used approach to evaluating the macroeconomic effects of unconventional monetary policy is the ‘plug-in’ approach, which uses estimates of the impact of unconventional policy measures on asset prices to plug them into standard macroeconomic models. For example, Chung et al. (2012) use the estimate reported in Gagnon et al.
Topics: Monetary policy